CULTURE CHANGE: A DISCUSSION DOCUMENT

BY ANDREA (ANDI) SIMON, PH.D. CORPORATE ANTHROPOLOGIST | CEO SIMON ASSOCIATES CONSULTANTS

“Culture Change: A Discussion Document” is for anyone who is interested in how to assess their current culture for their , regardless of what type of organization it is, and how to better understand what that organization's employees would really prefer that culture to become. There are lots of reasons why this is so important. At SAMC, we use a tool called the Assessment Instrument (OCAI). I want to talk today in this power point presentation about how the OCAI works, why you should think about using it, and then once you have, how to change your organization's culture based upon the results you see. At SAMC, when we’re hired to help an organization change, the first question we often get, and typically it's from an HR person or an organizational development person, goes like this: "We have a new CEO (or president or new ) and they really want to better understand the culture we have today, and then they want to create one that is far more ……" and you can fill in the blank. We've heard all kinds of things. The new leader wants to have more rules, more results. They want more customer focus. They'd like to have more entrepreneurial spirit. They

1 want to empower their employees. Maybe they want more teamwork. The words are varied but by and large, they really don't know what their company culture is today, nor what it should become for the future. Culture is extremely important. Culture is the essence of who people are. They come together to share common values, beliefs and behaviors. So when we start talking about culture change, it's important to know, "What is your culture today, anyway?" You've been recruiting for it. You've brought in people who fit it. The people who have stayed, like it. They value the same kinds of things that their colleagues do. They know what to talk about at lunch. So, the idea of changing it isn't casual. It's serious. And what will you change it to? What are the dimensions of it? Will the new culture actually get the results your strategy is designed to achieve? A much-quoted phrase says that “culture eats strategy for breakfast, lunch, and dinner.” It’s true. Culture really does overwhelm whatever your strategy is because if it is not aligned with the values, beliefs and behaviors of your people, it will not work. So what kind of culture change process will stick? This is part of the reason why the OCAI has become so popular and valuable. Change programs often fail. In fact, as many as 75% of company efforts to change fail entirely or create negative results. McKinsey did excellent research on this, and they found that 70% of company efforts to change went nowhere, and as soon as the effort was completed, people went back to what they had always done. So regardless of what they were doing, Fortune 500 companies found only 20% achieved their quality objectives. 40% said they were a complete flop. Whether it's reengineering or TQM (total ), even strategic plans have become shelfware, downsizing. It's very difficult to change people and people are your organization. I love Tony Robbins’ quote: "Change happens when the pain of staying the same is greater than the pain of change." Think about it. At SAMC we often say, "If you want to change, have a crisis or create one." People hate to change, even when they know that they have to in some way. Even if they know there are generational differences. It doesn't quite matter what the reason is for thinking about culture change. It's only when the pain becomes quite profound that people really pay attention. You need a fire drill and an emergency room. What is culture anyhow? In the very simplest definition, culture is the way you think, act and interact. Humans are cultural animals. We give meaning to everything, and we don't live alone. For us to interact with others, we need to share common values, stories, beliefs and ways of doing things. We don't want to think about it each and every time. Culture is a habit that takes over. Successful firms have intentionally built cultures. Now, humans are very clever and creative creatures. If you don't build a culture, people will build one for themselves. They cannot live without it. It's part of who they are as humans. It's the essence of who they are. And if they come into a company and they're aggressive and competitive, and they want to win, they'll build a culture around those

2 things that they value. And if they are very much into entrepreneurship, and they like visionary ideas, they are going to do that too. Successful firms reduce uncertainties and create a social order so that people know what to expect. That expectation is extremely important. People come to work every day, and they want to know what to expect. Culture also creates continuity and key values and norms. Think about your onboarding process. You're trying to share with somebody new what you value, what you believe in and the way you get things done. Culture also creates a collective identity and a commitment to that identity. It becomes the brand. And if you have a good strong brand, you want to make sure you're living it. Living it is that culture. It expresses a vision of the future and energizes forward movement. People need to know where they're going, and they can only follow you if they have a clear understanding of what this means for them. Now, this is all fine, as long as it's not the wrong culture. And the wrong culture can take you down the wrong path, and you won't even know it until it's too late. Once have a culture, that culture hates to change. The reason that it's so powerful is that humans have evolved because they've had cultures that are shared from one generation to the next, from one group of employees to the coming of the new ones. And that consistency has made it very powerful as a vehicle for our survival. So these values, beliefs and behaviors are “the way we do things here.” And even if they're not working, and you know they're not working. The continuity of those cultural values is very powerful. And in the process, adherence to a clear set of conceptual values makes it very difficult for us to say, "Well, those were good in the past, but now we want them to change to something new." We haven't quite figured out what those are yet. Cultures can foster adaptability, so on the one hand, I've been talking about how they create consistency and continuity. But there also can be cultures that foster adaptability, innovation and value creation, but they do it by providing a clear set of principles to follow when designing strategies to deal with new situations. Innovative companies know how to do innovation. They build a culture of idea generation, of methods for testing prototypes. They understand what the return on that investment should be. And they really have processes to engage staff around new methods of doing things. So it's not simply a hardcore sort of casual. Innovative cultures are extremely well designed to do innovation. In addition to that, departments within an organization may have their own subcultures. And I'm sure you're seeing that. In your own organization, Marketing may have very different values than Sales or Human Resources, Engineering or Finance. It is very interesting that the line organization often is disconnected from the support staff. Systems engineers act differently than those who are implementing those systems. We had one wonderful client situation where the system engineers thought all the clients were really stupid. That was very interesting. Not a good alignment at all with what the clients needed. And in many ways, they didn't even know what the clients needed.

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So you can have different companies with a different focus on what you value and how you act. And you can have different departments who may as well. And all of that can work well if there's a shared culture across the organization, such as, “We belong to this firm and share common things. So when we are asked, ‘Why do you like working there,’ we can tell them why.” Culture is a glue. I can't emphasize that enough. The story that you create in that culture is the glue that holds it together. It's an and worldview. But it's basically a story. It may be a mythology, but it's a story that we share. And it affects the way your team members think, feel and behave. It’s very true that we decide with the heart and justify with the head. People are not aware of their culture until it's challenged, or maybe when they experience a new one. There are often situations which our clients have where somebody leaves the firm to go somewhere else and then calls a year later and says, "Can I come back? I've experienced a new company culture and I don't like it at all." So until you go and visit a different place and live in it, you may not know what your culture is and why one is better than another. As you're listening to me here, the question you might have is, is your culture the right one for today? Is it preparing the organization for the future? Particularly if clients are changing, and generational changes for employees are happening. And is it aligned with your strategy? At SAMC, we do a lot of Blue Ocean Strategy® work with our clients, and one of the things that happens when an organization discovers its Blue Ocean Strategy is that it has to change its culture. Typically, more of the same is not going to work when you're creating a whole new market space. As you're facing the challenges ahead, you’ve got to figure out what is that challenge? Why is it so hard to see what's might be right in front of you? There are several things to keep in mind when going about a culture change process. Particularly the resistors. They create resistance in people when you talk about changing them. The first is the comfort of the herd. Your culture is a strength because humans are herd animals. We are very comfortable sharing common values, beliefs and cultures. Whistleblowers aren't below it, change agents aren't fun. Everybody's happy doing what they've always done, dressing the way they do, and believing what they've done is really good. Second is that habits are driving you. While we think we have a lot of free will, we are really very habit-driven. It's the most efficient way for the brain to operate. Once we create habits, they become the driver of our everyday behaviors. So if you're thinking of culture change, make sure you realize you're going to change that culture's habits. And the brain hates to change. It really does create chemistry that says, "Stop the changes. I don't want any more. It's really horrible." So with change, you're taking a step into the unknown. That unknown is extremely important because ambiguity and lack of clarity is a place that people feel most

4 uncomfortable. It's when they run away back into what they're familiar with, even if they know they can't do that anymore. Now, I sort of love this. People are loyal to culture, not to strategy. This is exactly the power of culture and why, if you're thinking about changing it, you need a process. So let me now talk about the process. The Organizational Culture Assessment Instrument helps diagnose and change a culture. This methodology, the OCAI, was developed at the University of Michigan by Drs. Kim Cameron and Dr. Robert Quinn. They built it out of the Competing Values Framework created by Dr. Jeff DeGraff. The OCAI is extremely well-researched and very well- established as a serious model of method theory and survey approach to capture what a culture is in an organization and how it could be changed. There are six dimensions that have the underlying part of these four types of cultures. One is the dominant characteristics of the organization. What is the organization really like? The second are the styles and the approach that you take. What type of leader is there in this organization? What do you encourage in leadership? The management of employees is extremely important. How are employees treated, and what is the work environment? Is it one of the best places to work or a place where you just work? What’s the organizational glue that holds it together? Next, the strategic emphasis. What areas drive the organization's strategy? Where are you going? And the criteria of success. How is victory defined, and what gets rewarded and celebrated? The OCAI identifies four archetypes There are four archetypes that came out of Cameron and Quinn’s research around the six dominant elements of a culture. If you've taken the OCAI online (and you can take it for free at ocai-online.com), you know that it’s an excellent way for you to understand the dimensions of how we diagnose and change an organization’s culture.

The first archetype I’ll discuss is the one at the top: adhocracy, with organic processes with flexibility, individuality, spontaneity. At the bottom is mechanistic processes:

5 , order and stability. So there is tension between the things that are flexible with lots of individuality and things that have order, control and stability. Then on the left, we have a focus on the internal maintenance. The whole focus is on smoothing activities and being well-integrated. And on the right, competition and differentiation. These are powerful and different ways of thinking about how a company is going to exist. So to understand this, we start on the top right. The creative part has lots of visions and empowerment of staff. And it's very creative. On the bottom left, hierarchical organizations are very controlling. The rules rule. Different set of values. Above hierarchy is the clan. Very collaborative, a lot of focus on teamwork and building staff and really getting along. And on the bottom is the market. Competing, driven. The organization is focused on the customer, on results, and on really differentiating itself. There is no good culture. But there are lots of good ways to combine these into good cultures. Now, I certainly can share with you lots of experiences that SAMC has had with cultures that are on the competition side. We work with a commodities trader. They made a whole lot of money competing but didn't get along. We've worked with family firms that had a great deal of good times working together but didn't get much done. We’ve also worked with entrepreneurs who say, "I have an idea a minute. If I don't have a hierarchical person to organize me, a type A, my ideas don't go anywhere." And then we've had rules-driven organizations that we've worked with in Mexico that couldn't hire anybody because nobody wanted to work in a silo, rules-driven cement company. It is not easy to have the right mix. But when you take the OCAI and you do an analysis of each of those questions, there are four answers. You have 100 points, and you begin to see what you would prefer and what you have now. You come up with a chart, a graph, on the left and a chart on the right that shows you how you answer those questions. And you answer them for yourself, for your team, for your whole organization. This allows you to create a common platform for discussing your culture of today against what you would prefer it to be.

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In this particular case, these folks are really not badly balanced. But there's a lot of hierarchy in there, as you can see. 29.8 is quite strong. And a lot of clan or . What they would prefer is a lot more adhocracy, a lot more creativity, empowerment, self- starters, much less rules. At least enough to allow them to take some risks, and adhocracy has far more risk to it than a rules-driven controlled organization. They’d also like a little more focus on the market, the competition, on creating a more customer-centered organization. It's a nice balance today, but a completely different balance tomorrow. As I said, there is no good or bad. The question is, in the story that I just told you, they want to shift their focus from organizing processes and controls to giving people more power and enabling them to be self-starters. The 4 types of cultures

Heirarchical: Controlling culture

Dominant characteristics: internal maintenance with a need for stability and control. A leader type: good coordinators, organizers and efficiency-minded. The management of employees: secure employment and predictability. A lot of rules governing this. Glue: a very formalized, structured place to work. Some people love that. I was a banker for many years. People love the banking structure. Hierarchical, controlled and regulated. The emphasis on rules and rule-following, processes and procedures. Successes: dependable delivery, smooth scheduling and low cost. A lot of efficiency talk here. Inwardly focused and disciplined, concerned with improving quality and cutting cost out of production. That could be you.

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Clan: Collaborative culture

On the other hand, the collaborative: clan culture has an internal focus with much more flexibility. Leader type is very fatherly or mentoring. The management of employees, they're very involved and engaged. There's a lot of teamwork. Yet I will tell you that we had a client who was so collaborative that they had 30 people at meetings and nothing ever got done. A lot of engagement and teamwork but not a lot of results. Nothing is without its unintended consequences. The emphasis of a collaborative culture: high commitment and solidarity. We worked with a family firm with 49 family members in it. It was very committed to each other, not necessarily very productive. Success: sensitivity to the customer and concern for people. The organization places a premium on teamwork, participation and consensus. Is that you?

Adhocracy: Collaborative culture

The dominant characteristics: external focus and flexibility. A leader that's an innovator, an entrepreneur, a visionary, who empowers individual and freedom, and creative problem-solving. The glue: commitment to experimentation and innovation. We

8 had a healthcare client, whose story is a chapter in my book, who was very much into becoming more collaborative and creative. The problem was that they didn't know what those things meant. Collaboration meant that their different unions would have to get along. Emphasis: always being on the leading edge, gaining unique and new products or services, and the organization encourages the individual initiative and freedom, and is a dynamic entrepreneurial place to work.

Market: Competitive culture

A competitive market culture has an external focus and is results-driven. The hard drivers, producers and competitors are tough and demanding. Those commodity traders we worked with were certainly drivers, producers, competitors and very demanding of themselves. The management of employees: competitive and goal-oriented. We did some work with Starbucks in Canada. They wanted to become more innovative and collaborative, but they were market-driven and very competitive. The glue is a focus on customers, competition and delivering results. Emphasis is on winning. Market share is talked about often and is defined in terms of market share and penetration. The organizational style is hard-driving, competitive, results-driven and focused on reputation and success. A SAMC case study Here, I’ll share with you one client's story. This client had a very well-established legacy company that was losing its business but it had a lot of cash. It wanted to buy other companies to diversify its income streams and its focus. So it took a look at its culture because it had acquired multiple new customers, new partnering, new companies. And in the process of acquiring the new companies, it realized that they really didn't behave the same way that the home company did. So the executives took the time to really take a look at their culture from the OCAI perspective. This is the executives' OCAI (below):

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We always start with the leadership, because unless the leadership knows what it thinks, it's going to be difficult to interpret what its employees think. So this was its current: Clan was 26. Adhocracy was almost nonexistent. Innovation, empowerment, risk-taking: not much. Market-driven, results-oriented: absolutely off the charts. Hierarchy: very powerful. So the rules and the processes controlled the business, not innovation and creativity, empowerment and risk-taking. When the leadership took a look at what they would prefer, they were astonished. They wanted to be much more creative. Going from 9 to 27 is almost an exception I haven't seen too often. The market wasn't going to change much but hierarchy was really going to be reduced. They wanted even a little less clan, a little less collaboration, and a little more creativity. Very different preferred culture from the executives. So today, there's a mixture of cultures where an emphasis is placed on processes and controls, collaboration and teamwork, to get results and profitability. Very little on innovation and empowerment. Tomorrow, there's a desire for a culture with the same focus on competing and winning but much greater emphasis on creativity, empowerment, risk-taking and innovation. For each of their newly-acquired companies, though, they had a problem. Take a look at these. They were very nicely balanced. Here is Company A that they acquired and what its OCAI was for today and what they wanted more of.

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Now, remember, many of these were family firms where the acquisition meant that the family leader was no longer going to be the head of the company. And new people came in. But they weren't getting the results that the acquiring company expected and they wanted to understand why. But what's so interesting about it from an OCAI perspective is that they were pretty competitive and balanced to start. There is a nice red mark there. If you look at the graph, the clan had 23, adhocracy 18, market 30, and hierarchy 27. That looked pretty good. What they wanted to shift to was more collaboration and creativity, and a little less focus on the market and the hierarchy. Often, the best-managed companies are right around that center. Neither of those were particularly disturbing. But what was interesting was that Company B that they acquired was almost identical. And Company C was almost identical again.

They all seemed to want a lot more collaboration and creativity, and a little less focus on the competition and the market, and a little bit less control. It was a very nicely balanced, very well-balanced model either way. The challenge was that the leadership wanted to drive the processes into the organization, that hierarchy, and get them to focus on competition and results. But the newly-acquired companies wanted to focus on a much better balance between empowerment, risk-taking and innovation, with much more teamwork to get the results. They had different concepts, different stories, about what they thought was the best way to achieve the return on this investment they had made.

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They realized that change was difficult, but that not changing was going to be quite fatal. And they became very attuned to what they could change, and when and how, and where they would begin to get the results that they were looking for. It was a strategy discussion as much as a cultural one. How might you change your culture to achieve your strategic objectives? We talked about the process. Change is so challenging, so let's start there. You're challenging the very essence of who a person is every day. It's not a task to perform, it goes much deeper. Their personal identity comes from their culture. So this is about changing a person. What we've learned, and a lot of this is from the neurosciences, is that people will change their minds and their behaviors if they see others, particularly leaders, colleagues and staff, behaving differently. They are not going to risk stepping out of line. They don't know what the "new" is yet. So to change is very risky. And people mirror each other unconsciously. They are mimics. We're monkeys. They bond through watching how others behave and then share that intuitively. Without really saying, "This is what I'm doing," you watch each other. And then you become part of the herd. The second thing is, "I'll change my mind and my behaviors if I understand what is being asked of me and it makes sense." People buy with the heart, justify with the head. They want congruence between what they believe and what they have to change. So don't underestimate the importance of telling them why, over and over and over again. In one client market, we've been working with universities that have declining enrollments. And until the faculty and staff really see the numbers and the projections and why they have to change, it's not easy to change. And then when they do see it, they have an epiphany and they say, "Oh. That's what we have to do. I'll change my mind and my behaviors if you develop my talent and my skills. I can learn new ways to do things if you invest in me." Coming out of anthropology, there are different theories about how leaders see their organization. There's one, Theory X , that says you see your folks as being lazy. They come to work to make a living, but they're not very engaged. And you don't think you can trust them to learn new things and empower them to get things done differently. Then there's a Theory Y. It's the opposite. You really do think you have talent. You've hired them. You've brought them into the organization. But you haven't empowered them yet. So you're going to train them but not by making them take courses. You're going to train them with active learning. You're going to have mentors and coaches. This is all about a new performance. And then they will change their minds and their behaviors if they see you changing the organization's structures. “The way we do things,” this is very active learning. If all we're doing is saying the words but not changing the way we're doing things, it won't work. But remember, people like a smile and a hug, too. And the more times you let others see what it is they've done and celebrate their accomplishments, you will be amazed at how people want to mimic the go- getters. And the way you celebrate their achievements matter. Take a serious look at what you're doing now.

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Don't sit and force today's culture. Will it work for tomorrow's? Can you change? The way we try and explain this is by focusing on typical behaviors.

So if I want to become more creative, more externally-focused in adhocracy, we do new things. We change and test, we innovate, we build divisions, we empower and allow risk. This is very different from the control culture that wants stability. They do things correctly, they structure workflows, they build processes, they create reliability, they use data and analysis, and the rules rule. Those two are often tense. Too much of one or the other creates an impasse, a roadblock, to really moving forward. The collaborative culture, they do things together. They build relationships, they have teamwork and engagement. And the competitive culture does things fast, they compete, they deliver results, they are hard-driving, they're focused on the customer, and they outdo the competition. The market culture and the collaborative culture often are at odds with each other. One is very focused outside and the other inside. And it becomes quite interesting. We did the OCAI with a transportation engineering firm in the West Coast with multiple offices. One office took the OCAI and was off the charts on the red. They were extremely competitive, and they were bringing in a lot of business. But they had very little collaboration and much less innovation than the leadership thought they should have. On the other hand, another department, another office, had a collaborative culture to the extreme. And they rarely got any business done correctly, on time, but they were really happy with each other. We’ve worked with family firms that really loved each other but didn't get things done, and very powerful companies who had great returns but didn't get along. So as you're thinking about this, think about it in common language. The OCAI can help you see, feel and think differently about your culture today and what you would like it to be. Learning to “see, feel and think” differently. I think of it as changing the stage on which you're performing your business. You're asking people to write a new script, rehearse it, play a different role, stay on stage and act

13 differently, and, somehow, turn the place into a new kind of organization. You can do it. But you need a process, and it does take some time. And it takes some expertise, often from the outside, to keep moving people forward. But I will tell you that it also takes people inside to be skilled at doing this. If not, they will easily go back to their habits. 8 principles we like to follow. 1. First, clearly define your change and map it out. Make the undesirable essential, see what you're trying to do. b Keep your language simple. 3. Start at the top. 4. Teach the frontlines that OCAI is to be taken by everybody. Within one healthcare system, we had 65% of their 2,500 employees take it. It became credible because we had such good penetration. 5. Understand and use the culture you have today to your advantage. Are you moving it dramatically or just incrementally? An accounting firm we're working with wanted to become more innovative and empowering. So it had to get people to trust that if they made a mistake, it was okay. We’ve put together a personal development program for them so that we can build different kinds of skills in the very staff who are very good CPAs, but not very good as entrepreneurs. 6. Tie the changes to strategic and emotional benefits. Make it all work together, get it aligned. Remember we buy with the heart, justify with the head. 7. Encourage behavior shifts. We often hold a symbolic funeral for behavior that we don't want to see anymore. We say, "We're not going to do this anymore." This is not just ideas, this is changing the way we get things done. The silos are no longer acceptable, how shall we change? 8. Support your changes with a formal framework. But it's a very engaged process. Thanks for the opportunity to share this with you. There are lots of ways we can help you assess your culture and help you change it. We welcome your reaching out to us. If you’d like, you can contact us here.

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